Jean Chatzky
Want to improve your wallet and your portfolio? Start thinking like a woman. A 2017 analysis of 8 million actual investors from Fidelity Investments found that women tend to outperform their male counterparts. They not only save 0.4 percent annually more than men, their investments earn 0.4% annual more than men. That adds up. “Research has shown that women are better at investing than men [because] they trade less, they do their research and they are more skeptical,” says Kristen Euretig, Certified Financial Planner in New York. Fortunately, you don’t have to be a woman to embrace these female-centric habits. Here’s a deeper dive into the things women are doing right — and how to emulate them.
Cut the overconfidence.
Women (and we can say this because we are them) are always told to be more confident — with our looks, abilities, and even finances. But lacking financial confidence has a surprising advantage. “Being over-confident about your financial management skills can erode your portfolio,” says Dr. Vicki Bogan, professor of finance at Cornell University. “Men tend to be more financially active in terms of turning their portfolio and buying and selling stocks so they trade more often.” Once you factor in transaction costs, that could mean having a lower net return. Women are not as confident so they turn their portfolios less — which is one reason they get better returns.
Be wise about whims.
The market, being the turbulent entity that it is, can cause people to overreact to whims. But more often than men, women tend to avoid making those rash decisions. Mara Mather, a professor of gerontology and psychology at the University of Southern California, found that when the pressure is on, women take more time weighing the possibilities and are more interested in smaller rewards that are guaranteed. “Women are more likely to execute a systematic financial investment strategy with periodic reviews other than constantly watching the market which can show a lot of volatility,” says Bogan. “And if you are reacting to all of the volatility in the market, you’re continually rebalancing your portfolio and that’s generally not optimal.” Moral of the story — try to keep your emotions at bay.
Know it’s okay to ask for help.
Okay, let’s be real — how many of you know men (or are men) who ask for directions when lost? According to a study done by PsychTests.com, men are less willing to take direction and criticism. There’s a reason for that. The research shows far fewer men than women are willing to admit to others when they have difficulty understanding something, or are unfamiliar with the topic. On the flip side, Euretig says, women are more comfortable with vulnerability. As a result, they prefer to seek financial help and are more receptive to advice.
Safety first.
“While men are focused on wealth accumulation, women are focused on wealth preservation,” says Bogan. This safety first mentality can cause women to be more diligent about saving in general and retirement saving in particular. That’s a good thing because women — on average — live about seven years more than men do (thanks, estrogen!). Being conscientious of preserving our wealth to last us through those extra years is another thing men can learn from us. But women are sometimes too risk averse — and that can hurt us. Not taking risks can save us from making mistakes, but we may not make as much on our returns. It’s a balancing act. If you avoid stocks to such a degree that you’ve got all of your money in “safe” investments, you will lose money after taxes and inflation. That’s no solution either.
Eyes on the prize.
Men tend to look at the markets and their investments with an eye toward making as much as possible and #winning. Women tend to focus on making enough to meet our short- and long-term goals. “Trying to make money for the sake of making money leads people to riskier asset classes, which are only appropriate for more long-term goals, or worse, unproven asset classes like cryptocurrency for the allure of making a quick buck without understanding the implications,” says Euretig. Although taking appropriate risk is a healthy prescription for your long-term goals, when it comes to your short-term ones, it’s smart to play it safer.
With Hattie Burgher
Chris O'Shea
